Wolverine, We Energies will clean up U.P. coal plant, keep it running

We Energies' coal-fired power plant in Michigan’s Upper Peninsula will remain open and be equipped with modern pollution controls, under an agreement announced Tuesday.

The Milwaukee utility and Wolverine Power Cooperative of Cadillac, Mich., have been in discussions on the project for most of this year.

They announced a plan under which Wolverine will invest $130 million to $140 million in environmental controls that will enable the power plant to meet federal environmental rules aimed to protect air quality and public health.

The deal will preserve 170 jobs at the power plant, Michigan Gov. Rick Snyder said in a message posted on Twitter. Snyder and utility executives announced the deal in Marquette Tuesday morning.

Community leaders in Marquette were striving to save the plant, a major local employer, from a shutdown.

A shutdown was one of the factors that was driving an extensive power line upgrade proposal from American Transmission Co. for northern Wisconsin and the Upper Peninsula, at a potential cost of $1 billion that would have been funded largely by utility ratepayers in Wisconsin.

A scaled-back version of that project will still move forward, ATC spokeswoman Anne Spaltholz said. That $280 million project addresses reliability problems in upper Michigan, which experienced a widespread blackout in May 2011, she said.

Under the utilities' plan, Wolverine will become a part owner of the plant, and will pay for and build the environmental controls. We Energies will remain the majority owner of the plant and will continue to operate it.

“Wolverine is excited to invest in Michigan to secure power supply for our members and protect grid reliability in northern Michigan,” said Eric Baker, president and CEO of Wolverine, in a statement.

The plan needs approval of state regulators in Michigan and Wisconsin as well as the Federal Energy Regulatory Commission.

We Energies evaluated a number of alternatives including shutting the plant down and replacing it with a series of new power lines, as well as converting it to run on natural gas.

“Of all the options this is really the most cost-effective option for our customers, not only in Wisconsin but also in Michigan,” said Allen Leverett, executive vice president of We Energies.

We Energies had sought to structure the deal in a way that would not add further costs to its customers, including its largest customer, the operator of iron ore mines in the Upper Peninsula.

Wolverine has been looking to add around-the-clock power generation capacity to its fleet, and this project accomplishes that.

The one-third ownership stake in the power plant will supply about 25% to 30% of Wolverine’s power supply needs, said Baker.

“We’re a non-profit organization. Our mission is about minimizing costs, not maximizing return on investment, and we thought this was a good opportunity for us to add another piece to our portfolio,” Baker said.

The investment will help the power plant comply with environmental rules already on the books, while giving the facility “a path” toward complying with other rules still in development by the U.S. Environmental Protection Agency, or being litigated in the courts, Leverett said.

The companies could have proceeded with fixes that would have cut sulfur dioxide emissions by 90% on all five coal boilers but instead chose to deploy that technology on three of the five while using a different technology that will pare emissions by 50% on the remaining two boilers.

Deploying the technology on all five would have pushed the cost of the project above $200 million, Leverett said.

“What we’re trying to do is strike a balance of upfront costs. We’d rather not really load up to a huge degree on upfront costs more than we need to,” he said.

If state and federal regulators approve the project by early 2014, construction could begin that year and the project would be completed by the summer of 2016.

Environmental groups Sierra Club and Environmental Law and Policy Center on Tuesday reacted to the announcement by reaffirming their opposition to a new coal-fired power plant that Wolverine has proposed to build in Rogers City, Mich.

The Sierra Club's Tiffany Hartung said the Presque isle announcement was "an important step for protecting public health in Michigan."

The project would create up to 100 construction jobs.

The project keeps the U.P.’s power situation at a status quo level, Leverett said, adding that more transmission would still be needed to help improve the peninsula’s power grid reliability or to attract more economic development.

During his remarks in Marquette, Snyder expressed support for a transmission upgrade that would provide a better interconnection between the Upper and Lower peninsulas of Michigan, Leverett said.

The Citizens' Utility Board, a Madison-based consumer group, has been working to challenge the need for Wisconsin utility customers to pay for costly power line upgrades in Michigan.

Charlie Higley, the group's executive director, said Tuesday he was glad to hear a Michigan utility would be investing in the U.P. plant upgrade.

Snyder said in a statement that the deal provides economic and environmental benefits for the Upper Peninsula while improving air quality.

"The agreement also preserves much-needed jobs in the community and protects consumers throughout
the region by ensuring greater energy reliability. I applaud the support of labor and community leaders in making this a reality," he said.

Located on the edge of Lake Superior, the power plant has five boilers built in the 1970s that are capable of generating about 344 megawatts of electricity, or about one-fourth of the power generated by the new coal-fired power plant We Energies opened in recent years in Oak Creek.

We Energies' largest customer, Cliffs Resources Inc., operates two iron ore mines in the Upper Peninsula. The firm has been lobbying state regulators and legislators to pare down rate increases We Energies has received in recent years to fund its power plant expansions in Wisconsin.

Wolverine is a utility cooperative that supplies power to five local electric cooperatives as well as two non-regulated energy suppliers in lower Michigan.